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How will the Fed handle the lack of data ahead of next week's rate cut decision? · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back to the Financial Exchange. Is Mike,
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Speaker 2: Mark and Tucker with you on a Thursday morning where
1:18
Speaker 2: we've got stocks moving in the right direction. Dow up
1:22
Speaker 2: thirty five points, a little bit less than a tenth
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Speaker 2: of a percent, SMP up twenty two or a third
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Speaker 2: of a percent of the NASDAK up one hundred and
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Speaker 2: thirty eight points, six tenths of a percent after a
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Speaker 2: modest sell off yesterday of what about half a percent
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Speaker 2: on the S and P five hundred, If I'm not mistaken,
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Speaker 2: was it more?
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Speaker 3: We'll find out.
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Speaker 4: Uh Ah, I did a big write up on it too.
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Speaker 4: It may as well have been five years ago. He's
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Speaker 4: a moving fast, Michael.
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Speaker 2: Oil prices jumping five percent after the Trump administration announces
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Speaker 2: sanctions on big Russian oil companies.
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Speaker 3: Uh.
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Speaker 2: Still more to be seen in terms of the actual
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Speaker 2: effect of these, but what we do know is that
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Speaker 2: the owner and operator of the world it's largest oil
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Speaker 2: refinery in India, Reliance Industries, has come out and said
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Speaker 2: that with this announcement it may cause them to well,
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Speaker 2: they came up with a very political statement about, you know,
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Speaker 2: not violating Indian law when it comes to what products
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Speaker 2: that they purchase or don't purchase from Russia. But they
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Speaker 2: have been one of the large beneficiaries over the last
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Speaker 2: several years of buying heavily discounted Russian oil in the
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Speaker 2: open market in spite of sanctions on those companies. So
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Speaker 2: we will see if these sanctions are enough to deter
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Speaker 2: at least the Indian buyers. The most that I've seen
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Speaker 2: written has not really questioned whether or not China is
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Speaker 2: going to be willing to buy this oil still, and
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Speaker 2: the answer seems to be yes, because they're not as
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Speaker 2: reliant on the United States financial system. But we shall see.
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Speaker 4: Can we talk as we did in the last hour
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Speaker 4: about winners and losers here and yeah, because that was
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Speaker 4: you know, naturally people might ask, well, what does that
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Speaker 4: mean for me? And if you're in the East Coast,
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Speaker 4: you're a loser when oil prices go up. But if
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Speaker 4: you're in the car e from Thedo is down to
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Speaker 4: Texas oil country, I'm just being obviously very general here,
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Speaker 4: you're a winner. The picture is a lot more complicated
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Speaker 4: in terms of sizing up, yeah, a winners and losers
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Speaker 4: relative to say twenty or thirty years ago. Thanks to
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Speaker 4: fracking techniques that allow us to get too hard to
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Speaker 4: access oil.
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Speaker 2: The other big question that we would pose here, and look,
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Speaker 2: I am personally not in the business of trying to
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Speaker 2: guess where oil prices go on a month to month
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Speaker 2: or year to year basis. I don't know anybody that's
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Speaker 2: made a successful career on that path, although I'm sure
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Speaker 2: many have tried. The benefit that we have seen to
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Speaker 2: inflation over the course of the last year from at
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Speaker 2: least moderating, if not dropping oil prices and gas prices
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Speaker 2: has been pretty significant. It has helped inflation stay relatively modest,
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Speaker 2: and I think very clearly, if that happens to go
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Speaker 2: in the wrong direction, then this three percent inflation scenario
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Speaker 2: that the FED has been more than willing to accept
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Speaker 2: and live with could quickly become a four percent inflation number.
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Speaker 3: Or that's everything beyond.
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Speaker 4: That's another important implication of all this.
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Speaker 2: That is an important implication because it affects everything from well,
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Speaker 2: most importantly, the Fed's willingness to succumb to further rate
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Speaker 2: cuts and the presence ability to drive them towards that,
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Speaker 2: and everything else alongside that, whether it's credit card rates,
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Speaker 2: mortgage rates, car loan rates, all of those other items
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Speaker 2: that are tag along with this overall strategy.
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Speaker 4: And that point can sometimes be confusing because we often
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Speaker 4: say the FED, through its control of the supply of
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Speaker 4: money heavily influences effectively controls long term inflation. In the
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Speaker 4: short term, there are things that push average prices as
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Speaker 4: measured by for example, CPI or whatever your preferred measure is.
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Speaker 4: In the short term, there are things that cause the
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Speaker 4: average to go up because, for example, the price of oil,
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Speaker 4: which is very flexible, It changes every day throughout the day.
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Speaker 4: So if the price of oil goes up, everything you
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Speaker 4: buy may not go up. Other producers don't change their prices.
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Speaker 4: As frequently said differently in kind of economic jargon, some
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Speaker 4: prices are rigid or sticky if you prefer, while others
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Speaker 4: are very flexible. So price spike a shock in again
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Speaker 4: economic jargon, can cause inflation.
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Speaker 3: To go up.
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Speaker 4: The Fed's policy is generally well, oil prices are as
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Speaker 4: likely to go up as go down. We're going to
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Speaker 4: look through that, but they can't ignore it completely.
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Speaker 2: Yeah, I was gonna say, like, they're willing to look
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Speaker 2: through it, but if it's bringing overall inflation to five percent,
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Speaker 2: then they're.
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Speaker 4: Going to feel the heat, and it could also push
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Speaker 4: out expectations, which you're an important component. We learned this
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Speaker 4: lesson in the seventies. Before the nineteen seventies, inflation expectations
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Speaker 4: weren't part of anybody's inflation modeling process. Now it's widely
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Speaker 4: accepted that they must be, and that's why oil price
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Speaker 4: movements are concerned.
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Speaker 3: It has been a busy earnings week as well.
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Speaker 2: Tesla reported yesterday after the bell stock is down about
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Speaker 2: two percent in early trading. They beat on revenue, missed
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Speaker 2: on earnings. The big push for Tesla sales was ahead
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Speaker 2: of the September thirtieth deadline on the expiration of the
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Speaker 2: EV tax credits, so that has now passed, and really
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Speaker 2: the entire earnings call had little to do about their
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Speaker 2: traditional EV sales business model and much to do about
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Speaker 2: their future as a robotics and self driving car company,
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Speaker 2: an autonomous taxi company, which there is a lot to
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Speaker 2: be proven on that front, but that is kind of
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Speaker 2: always been the mantra of Elon Musk and his car company,
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Speaker 2: which is massive promises for the future and investors' willingness
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Speaker 2: to give him extra rope on that.
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Speaker 4: It's so hard to attach evaluation to a stock when
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Speaker 4: so much depends on a highly uncertain perspective, that is future.
6:28
Speaker 4: I'm being redundant here, but outcomes. We've got Cybercab intended
6:35
Speaker 4: to roll out in many cities. The intention is to
6:37
Speaker 4: roll out in many cities next year. We've got Optimists,
6:40
Speaker 4: the Humanoid, the human like robot, which is supposed to
6:43
Speaker 4: go into mass production next year. And we've got the
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Speaker 4: Megapack or whatever he's calling his new residential slash commercially yeah,
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Speaker 4: scheduled to be rolled out next year. We have no
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Speaker 4: idea whether they'll roll out on time, et cetera. How
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Speaker 4: do you use traditional valuation methods to to slap evaluate,
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Speaker 4: to slap a fair price on this company? I just
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Speaker 4: don't know.
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Speaker 2: Well, it's been a busy earnings week this week, with
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Speaker 2: eighty nine S and P five hundred companies reporting. It'll
7:11
Speaker 2: be an even bigger one next week in terms of
7:13
Speaker 2: market cap. We'll have Visa kicking things off on Tuesday
7:17
Speaker 2: after the bell, United Healthcare Tuesday before the bell, Nevartas
7:20
Speaker 2: as well before the bell Wednesday, Microsoft, Google Meta all
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Speaker 2: reporting earnings. In addition to Caterpillar and others, and then Thursday, Apple, Amazon, Lily, MasterCard,
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Speaker 2: merk All reporting earnings, so big heavy hitters. Just between
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Speaker 2: five companies there, I count well over ten trillion dollars
7:38
Speaker 2: worth of market cap reporting, so big potential market moving
7:42
Speaker 2: week next week when it comes to earnings as well,
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Speaker 2: let's focus in a little bit more on that inflation scenario.
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Speaker 2: We are going to get a report tomorrow on inflation.
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Speaker 2: The context here important because we have a FED meeting
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Speaker 2: in addition to all the earnings next week. They're going
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Speaker 2: to be operating blindly. They have no jobs data. This
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Speaker 2: is the first inflation report that we've gotten since the
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Speaker 2: government shut down. What do you suppose I mean, I
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Speaker 2: don't need you to predict inflation. My guess is somewhere
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Speaker 2: around three percent is where we're going to see in
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Speaker 2: this inflation report. We'll see if there's anything that shocks us.
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Speaker 2: But how is the FED going to I guess, voice
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Speaker 2: their opinion on the economy at this upcoming meeting because
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Speaker 2: they are flying fairly blind.
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Speaker 4: They are, but they can use and any researcher would
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Speaker 4: do the same thing. We do it internally, but we
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Speaker 4: don't use it necessarily to make major decisions. It's more
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Speaker 4: as a check of our intuition, you can estimate based
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Speaker 4: on past values likely future values, assuming the process that
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Speaker 4: generates those values is the same. That sounds more complicated
8:47
Speaker 4: than it is, but so that My point is, there
8:50
Speaker 4: are ways for researchers, including those obviously starting with those
8:53
Speaker 4: arguably at the FED, to fill in the gaps using
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Speaker 4: statistical techniques. It's the methods we're doing so are pretty
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Speaker 4: tried and true, but they're subject to a lot of uncertainty.
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Speaker 4: Is you point out, the FED is faced with elevated
9:06
Speaker 4: ongoing elevated inflation is measured by things that do a
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Speaker 4: good job capturing the trend in inflation, that do a
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Speaker 4: good job of filtering out some of those one time
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Speaker 4: influences we were talking about a moment ago, such as
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Speaker 4: an oil price shock. Those measures like median inflation and
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Speaker 4: other outlier trimming methods point to elevated underlying inflation somewhere
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Speaker 4: in the threes high two s threes, which is way
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Speaker 4: above the FEDS two percent goal. We know this with certainty.
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Speaker 3: Let's take a quick break.
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Speaker 2: The entire reason we're getting an inflation report tomorrow has
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Speaker 2: everything to do with social security and cost of living, adjustments.
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Speaker 2: We're going to be joined next by Mark Hamrick from
9:38
Speaker 2: bank Rate on their survey on Americans expectations for social security.
9:42
Speaker 2: That's next with Mark Hamrick on the Financial Exchange.
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Speaker 2: Mark Hamrick is the Washington Bureau chief and senior economic
11:00
Speaker 2: analysts with bank Rate and joins us now to talk
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Speaker 2: about Americans attitudes towards soarch security and retirement generally. Mark,
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Speaker 2: thanks so much for joining us. Appreciate it. Talk to
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Speaker 2: us about who you surveyed in the main findings here
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Speaker 2: on Americans attitudes towards social security right now.
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Speaker 6: Good to be with you, Mike. Well, this is like
11:18
Speaker 6: most of our surveys at bank Rate of everyday Americans.
11:21
Speaker 6: We work with survey firms to get across section of
11:26
Speaker 6: the American public, and so this is meant to represent
11:29
Speaker 6: essentially the way that Americans feel on this particular issue.
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Speaker 6: The key finding really is that a majority of Americans,
11:37
Speaker 6: and in this case we're going to boil it down
11:40
Speaker 6: to what I'm going to talk about right now, and
11:41
Speaker 6: those who are not yet retired or so called non
11:45
Speaker 6: retired adults say that they do expect to be reliant
11:49
Speaker 6: on Social Security to pay necessary expenses once they do retire.
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Speaker 6: At the same time, a little more than three quarters
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Speaker 6: of Americans are concerned that they won't get their promised
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Speaker 6: benefits when that time comes.
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Speaker 2: I've found that most Americans that I talked to are
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Speaker 2: particularly salient on the issue and aware of the issue
12:10
Speaker 2: that this is something that is going to run into
12:13
Speaker 2: funding issues well within their lifetimes. My biggest concern here
12:17
Speaker 2: would be that with that knowledge, Americans make decisions around
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Speaker 2: Social Security that aren't all that logical. Do we know
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Speaker 2: if this fear is resulting in specific decision making on
12:30
Speaker 2: behalf of Social Security beneficials I'm thinking about working longer
12:33
Speaker 2: or taking benefits earlier, that you could potentially compound problems
12:37
Speaker 2: for their own financial situations.
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Speaker 6: It could be blatantly honest. That's not what we were
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Speaker 6: surveying on. But I think we can surmise anecdotally that
12:47
Speaker 6: obviously there are a range of potential outcomes or behaviors
12:52
Speaker 6: that are related to the skepticism that the full benefits
12:55
Speaker 6: will be available. And it's really problematic because you know,
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Speaker 6: we have, as measured for example by Gallop, very low
13:04
Speaker 6: trust and institutions in this country. It's been going down
13:08
Speaker 6: for a long time. Congress is not at the top
13:11
Speaker 6: of the list of trust by the way, typically it's
13:15
Speaker 6: the military and small business. It does reign supreme in
13:18
Speaker 6: the Gallop data. But so if you're skeptical that Congress
13:24
Speaker 6: is going to do the right thing, and you do have, frankly, unfortunately,
13:27
Speaker 6: in a historical basis upon which to judge, you know,
13:33
Speaker 6: you can imagine there's a range of potential ways to.
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Speaker 1: Deal with that.
13:37
Speaker 6: One would be what I would recommend, and that would
13:40
Speaker 6: be prioritize what you can control, and that is, make
13:44
Speaker 6: sure you're saving what you can save if indeed there
13:47
Speaker 6: is a potential benefit cut of twenty to twenty five
13:50
Speaker 6: percent around twenty thirty three, if indeed elected officials do nothing.
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Speaker 6: The other part would be sure work longer. The other
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Speaker 6: part would be, maybe you think I want to get
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Speaker 6: my money while I can and get the benefit earlier
14:06
Speaker 6: rather than waiting till full retirement eight age. And I
14:10
Speaker 6: can understand the logic to that, but of course the
14:12
Speaker 6: calendar of that is the longer you wait before that
14:16
Speaker 6: time twenty thirty three, the more you get in a payout.
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Speaker 6: So you know, it's a rather complicated situation, to say
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Speaker 6: the least.
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Speaker 2: I tend to hear from younger Americans in particular, who
14:29
Speaker 2: are far more skeptical about social security solvency and it
14:33
Speaker 2: being there for them when they get to retirement. Does
14:36
Speaker 2: that bear out in your survey in terms of generational shifts?
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Speaker 3: Sure?
14:40
Speaker 6: And so, for example, when we go across the range
14:44
Speaker 6: of adult cohorts or age groups, you've got thirty seven
14:47
Speaker 6: percent of members of Generation Z that's those who are
14:50
Speaker 6: aged eighteen to twenty eight say they expect to be
14:53
Speaker 6: reliant on Social Security to pay necessary expenses. So you
14:59
Speaker 6: would comp that to you know, that overall number of
15:02
Speaker 6: fifty two percent or seventy two percent among Baby boomers
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Speaker 6: that's those age sixty one to seventy nine. And again,
15:10
Speaker 6: you can come up with a number of reasons why
15:14
Speaker 6: they may give that answer. One is they have less
15:17
Speaker 6: confidence the money will be there. I would also hope
15:21
Speaker 6: that they are hoped that they are planning to take
15:26
Speaker 6: more control of their retirement savings. Given that we are
15:31
Speaker 6: where we are with.
15:32
Speaker 2: This right now shifting gears a little bit just to
15:35
Speaker 2: general retirement. How confident are the people you surveyed that
15:38
Speaker 2: they are I guess, catching up to where they should
15:42
Speaker 2: be when it comes to you know, retirement being on track.
15:46
Speaker 2: And again I'm sure I know you guys broke this
15:48
Speaker 2: out by generation as well.
15:50
Speaker 6: This is a survey that we released a month ago
15:53
Speaker 6: as a sort of precursor to the Social Security survey
15:56
Speaker 6: that we've just released, and this is pretty constant over
16:01
Speaker 6: time as well, that about three and five Americans say
16:04
Speaker 6: they don't believe they're on track with where they need
16:08
Speaker 6: or want to be with their retirement savings. And I
16:11
Speaker 6: do think that there is kind of a coming to
16:17
Speaker 6: terms with reality aspect of this as people become more
16:20
Speaker 6: senior and can you know, literally imagine the end of
16:25
Speaker 6: their work as opposed to being in their twenties or
16:28
Speaker 6: thirties or even forties and thinking, oh, that's so far
16:31
Speaker 6: away from right now. You know, either it's incomprehensible or
16:37
Speaker 6: I don't want to think about it. And you know,
16:40
Speaker 6: when you're seeing that over the dashboard, so to speak,
16:43
Speaker 6: over the hood of your car, that's when it starts
16:45
Speaker 6: to get real. And that is a call to action,
16:48
Speaker 6: right In other words, those who are youngest, earliest in
16:53
Speaker 6: their careers, they are in the greatest position to benefit
16:58
Speaker 6: from the power of compounding, taking advantage of the employeer
17:01
Speaker 6: matchment four oh one K doing what they can to
17:05
Speaker 6: live beneath their means, not on the cutting edge of
17:08
Speaker 6: the envelope, to live their best instagrammable life. That isn't
17:11
Speaker 6: necessary unless you've become an influencer. Isn't going to help you.
17:16
Speaker 6: And then those who are more senior, you know you
17:18
Speaker 6: can still you can still make changes that make a difference.
17:21
Speaker 6: And that could mean waiting to tap Social Security to
17:24
Speaker 6: get the higher payout. That could mean working longer, maybe
17:28
Speaker 6: not full time, but even just working part time because
17:31
Speaker 6: some income is better than no income arising from employment.
17:37
Speaker 2: Yeah, in spite of my best efforts, Mark, my forty
17:40
Speaker 2: second TikTok dance videos are just not getting the following
17:42
Speaker 2: I'm looking for. But really appreciate you being here, Mark
17:45
Speaker 2: excellent research is always and really interested in the survey
17:49
Speaker 2: and looking forward to having you on again soon.
17:51
Speaker 1: Always a pleasure.
17:51
Speaker 6: Thanks for having me, Thanks all right.
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Speaker 2: As we sorry, as we head towards the bottom of
18:43
Speaker 2: the hour here, we've got all marked all three major
18:46
Speaker 2: indices in positive territory here. Price of oil continuing floating upwards,
18:52
Speaker 2: but not quite as bad as it was earlier. We're
18:54
Speaker 2: up now about four point nine to four percent on
18:58
Speaker 2: West Texas crude, and old prices which have been bouncing
19:01
Speaker 2: around all of the last week, continuing to do so today,
19:06
Speaker 2: Gold up ninety eight dollars announced two point four percent,
19:10
Speaker 2: and silver also up in trading this morning, up two
19:14
Speaker 2: point seven three percent in early trading. We're gonna take
19:18
Speaker 2: a quick break when we come back. Tucker's gonna give
19:20
Speaker 2: us a full market recap and then We're talking fed
19:23
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19:38
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19:57
Speaker 5: Market's in positive territory, a mid and another batch of
20:00
Speaker 5: third quarter earnings from the likes of IBM and Tesla.
20:04
Speaker 5: Wall Street's also seeing a jump into oil prices after
20:08
Speaker 5: President Trump announced new sanctions on Russia's two biggest oil companies.
20:12
Speaker 5: Right now, the Dow is up over a tenth of a percent,
20:15
Speaker 5: or seventy six points higher, SMP five hundreds up four
20:19
Speaker 5: tenths of one percent, or twenty seven points. Nasdaq is
20:22
Speaker 5: up nearly three quarters of a percent, or one hundred
20:24
Speaker 5: and sixty two points higher. Russell two thousand is up
20:27
Speaker 5: about seven tenths of one percent. Tenure Treasure reeled up
20:31
Speaker 5: four basis points now at three point nine to nine
20:34
Speaker 5: to three percent in creude oil up five point three
20:36
Speaker 5: percent today, trading at sixty one dollars and sixty two
20:40
Speaker 5: cents a barrel. Tesla shares falling nearly two percent after
20:43
Speaker 5: the ev maker posted a thirty seven percent drop in
20:46
Speaker 5: quarterly profit, siting R and D spending in lower tax
20:50
Speaker 5: credit revenue. Meanwhile, IBM stock is dropping almost three percent
20:55
Speaker 5: now despite the computing company swinging to a quarterly profit
20:59
Speaker 5: and reporting higher earnings, noting that customers have shifted from
21:02
Speaker 5: experimenting with AI to using it at scale, sticking with
21:07
Speaker 5: tech where several quantum computing stocks are seeing gains after
21:10
Speaker 5: the Wall Street Journal reported that the Trump administration is
21:13
Speaker 5: in talks to acquire equity stakes in several quantum computing firms.
21:18
Speaker 5: Ion Q, Reghetti Computing, and Quantum Computing are all up
21:22
Speaker 5: anywhere between nine and twelve percent. Elsewhere, American Airlines narrowed
21:27
Speaker 5: it's quarterly lost, saying it expects to end the year
21:30
Speaker 5: more profitable than analysts had been anticipating. That stock is
21:34
Speaker 5: up five percent, Las Vegas Sands jumping twelve percent after
21:38
Speaker 5: it posted solid third quarter results, and Intel will report
21:42
Speaker 5: earnings after today's closing bell. I'm Tucker Silva and that
21:46
Speaker 5: is Wall Street Watch. And in the previous segment, we
21:49
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21:51
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22:09
Speaker 2: We will have a FED meeting and press conference on
22:12
Speaker 2: Wednesday of next week. Amidst the heavy earnings that we
22:15
Speaker 2: were talking about earlier, very widely anticipated, they will be
22:19
Speaker 2: cutting rates by another quarter of one percent. The current
22:22
Speaker 2: FED funds target is sitting at four to four and
22:24
Speaker 2: a quarter according to the Chicago Mercantiles Change at ninety
22:27
Speaker 2: nine percent. Probably that the rates will come down to
22:31
Speaker 2: that three and a quarter to four percent range. Again,
22:35
Speaker 2: we alluded to this a bit earlier, but they are
22:38
Speaker 2: operating somewhat blindly. They certainly have their existing models, but
22:42
Speaker 2: they do not have government data. They also kind of
22:46
Speaker 2: surprisingly lost access to some private data. So ADP is
22:50
Speaker 2: a private payroll provider, and we have quoted the data
22:54
Speaker 2: they put out on jobs on a regular basis, and
22:56
Speaker 2: for whatever reason, for the last several months, they have
22:58
Speaker 2: cut off access to the FED for that data.
23:01
Speaker 3: And I don't I don't know.
23:03
Speaker 2: Based on reporting, I don't really have a real semblance
23:05
Speaker 2: of the reason why maybe ADP wants to get paid,
23:09
Speaker 2: But there's been no real reporting on why ADP terminated
23:14
Speaker 2: the access to all that.
23:14
Speaker 3: I don't know if you have any.
23:16
Speaker 4: No special insight, no special insight, sorry, but not helpful though,
23:20
Speaker 4: I mean ideally go ahead.
23:23
Speaker 2: Yeah, I mean ideally you would have whatever you can
23:26
Speaker 2: put together.
23:26
Speaker 4: So ADP payrolls are taken obviously from a different sample
23:32
Speaker 4: than the federal government uses. Federal governments measure is far
23:35
Speaker 4: more comprehensive, and it's a random sample. ADP sample is
23:37
Speaker 4: not random. They just survey their clients.
23:39
Speaker 2: But the changes are I guess it's probably not even
23:42
Speaker 2: a survey, right, it's probably just a sense.
23:44
Speaker 4: It's just exactly, yeah, exactly. But the changes are pretty
23:48
Speaker 4: highly correlated. And the work we did on this internally
23:51
Speaker 4: suggests that if you're a forecaster and you want to
23:54
Speaker 4: forecast next month's payrolls change, it helps in your little
23:59
Speaker 4: model to include what ADP did, which you learn a
24:02
Speaker 4: couple weeks or whatever earlier. So it does help you
24:05
Speaker 4: if you're a forecaster, and if you're a FED forecaster
24:10
Speaker 4: using similar methods, because all researchers do, you're worse off
24:14
Speaker 4: for not having that data what that is worth.
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25:17
Speaker 2: There's a piece and market Watch today that I think
25:21
Speaker 2: brought up some fair points. But I've never seen someone
25:24
Speaker 2: please so passionately about such an obscure financial demand. So
25:32
Speaker 2: this piece is about borrowing from a four oh one K,
25:35
Speaker 2: which you are generally allowed to do the plan documents prevail.
25:39
Speaker 2: But there's a law there that you can't borrow more
25:41
Speaker 2: than fifty thousand dollars and it's been set there for
25:46
Speaker 2: forty years, and this author considers it an outrage that
25:50
Speaker 2: it hasn't been indexed for inflation. And to some degree,
25:54
Speaker 2: you know, I tend to agree here that a lot
25:57
Speaker 2: of these things should be indexed to inflation. And certainly
26:01
Speaker 2: it's I can't think a completely separate issue. But you know,
26:05
Speaker 2: he brings up that you can now inherit thirty million
26:08
Speaker 2: dollars tax free from mom and dad without having to
26:11
Speaker 2: pay any taxes on that inheritance, and that number is
26:15
Speaker 2: going to be indexed to inflation. So why wouldn't you
26:18
Speaker 2: index this? And I think it's a worthy cause, but
26:21
Speaker 2: I just I don't know how elevent it is.
26:23
Speaker 4: Quick camp plant it. This will be a nightmare if
26:25
Speaker 4: you're a record keeper to update your systems every year. Yeah,
26:28
Speaker 4: that's when four one K laws changed. They don't often
26:31
Speaker 4: at the pace is pretty glacial, but when they do change,
26:34
Speaker 4: it's a huge undertaking for your big record keepers like Fidelity.
26:37
Speaker 3: Yeah.
26:37
Speaker 2: Or in fact, they forced Congress to kind of delay
26:40
Speaker 2: some of these things with the most recent changes on
26:42
Speaker 2: ROTH four oh one K contributions.
26:44
Speaker 4: That said, we do update contribution limits every year. Yeah,
26:47
Speaker 4: and record keeping software has to accommodate that. Yeah, but
26:50
Speaker 4: it would place the burden on record keepers. That's one drawback.
26:55
Speaker 4: The other much bigger drawback, and this is why Congress
26:57
Speaker 4: isn't updating those limits. It is obscene that a residential
27:01
Speaker 4: mortgage loan, which has a longer repayment period on a
27:05
Speaker 4: four to one K loans and thus a lower payment
27:08
Speaker 4: hasn't moved in forty years when the median home price
27:11
Speaker 4: has troubled in. For that is a little bit obnoxious.
27:15
Speaker 4: But of course there's a policy motivation here, which is
27:17
Speaker 4: they don't want people tapping, and it's a good policy motivation.
27:20
Speaker 4: They don't want people tapping.
27:21
Speaker 2: Therefore away and by the way, I think currently like
27:24
Speaker 2: thirteen percent of four to one K holders have an
27:27
Speaker 2: outstanding loan.
27:28
Speaker 4: Is it really that low.
27:29
Speaker 3: It's not a.
27:30
Speaker 2: Huge portion of people based on data that I found,
27:33
Speaker 2: So I just don't see this as such a big issue.
27:36
Speaker 2: I think there are plenty of you know, outrages out
27:39
Speaker 2: there when it comes to this sort of thing. One
27:40
Speaker 2: of the biggest ones to me that has just always
27:43
Speaker 2: bothered me. So if you work for a company that
27:46
Speaker 2: offers a four to oh one K, you're allowed to
27:49
Speaker 2: put away Now I don't even know what's the four
27:52
Speaker 2: to one K contribution limit for twenty twenty five is
27:57
Speaker 2: now twenty three five hundred dollars. If you do not
28:04
Speaker 2: work for an employer that offers a four oh one K,
28:07
Speaker 2: then your only option is to contribute to an IRA,
28:11
Speaker 2: and your limit there is far lower. And I've always
28:15
Speaker 2: just asked, like, what's why, Why would that difference exist?
28:19
Speaker 2: Just because my employer is too lazy or too cheap
28:22
Speaker 2: to set up a four oh one K, it means
28:24
Speaker 2: that I'm not allowed to save for retirement in the
28:26
Speaker 2: same way that.
28:26
Speaker 3: Other people are.
28:27
Speaker 2: It seemed just obscene to me and just an easy
28:30
Speaker 2: thing to correct. I'm guessing it's because big influential financial
28:35
Speaker 2: companies like having that four oh one K business built in.
28:38
Speaker 2: But yeah, there's a lot of these idiosyncrasies into idiosyncrasies
28:42
Speaker 2: across the financial system, and I don't know this one,
28:46
Speaker 2: just this one didn't really get my blood pumping, if
28:48
Speaker 2: I'm being quite honest.
28:50
Speaker 4: No, it's minor in the scheme of things. Plus it's
28:53
Speaker 4: it's not a bad thing that policy discourages people from
28:56
Speaker 4: borrowing their four one K.
28:58
Speaker 3: Yeah, I'm not sure it's something we should encourage. Not
29:02
Speaker 3: sure something we should that's against future.
29:05
Speaker 2: Let's take quick break when we come back. Stack Roulette
29:08
Speaker 2: on the Financial Exchange.
29:10
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29:55
Speaker 2: There have apparently been some disappointed investors year with kind
30:02
Speaker 2: of obscure new investment product that's out there. It's not
30:05
Speaker 2: new an idea, the idea is using leverage in investing decisions,
30:09
Speaker 2: which has been around forever.
30:11
Speaker 4: It is borrowing money to buy your and we all
30:13
Speaker 4: use leverage to buy a house for example.
30:15
Speaker 3: Yep.
30:15
Speaker 4: And it's prevalence, which is why when you're underwater, it's
30:18
Speaker 4: it's worrisome. So on, the underwater concept applies here, sorry,
30:21
Speaker 4: Mike Right.
30:22
Speaker 2: And some of the new ETFs that have been coming
30:26
Speaker 2: out this year have been focused on not only it's
30:30
Speaker 2: an ETF that allows you to own a single stock
30:33
Speaker 2: or try and mirror the price return of a single stock,
30:36
Speaker 2: but with leverage, and unfortunately for some investors, they are
30:40
Speaker 2: learning kind of a hard lesson about the difference between
30:43
Speaker 2: owning a security with leverage and owning a fund that
30:45
Speaker 2: attempts to do something, because some of those shares are
30:49
Speaker 2: not doing a terribly good job of tracking their underlying security.
30:53
Speaker 2: And in one case, the actual shares of the company
30:57
Speaker 2: rose twenty eight percent in the twelve months that ended Wednesday,
31:00
Speaker 2: whereas the fund that tried to track it with a
31:03
Speaker 2: leveraged exposure went down by sixty five percent. So not
31:09
Speaker 2: that you are an expert mark in leveraged funds that
31:12
Speaker 2: track single.
31:13
Speaker 4: No idea how that could happen, I would need to
31:15
Speaker 4: talk to the manager.
31:16
Speaker 2: But I think the important thing here is that you
31:20
Speaker 2: actually have to read those really annoying packets that come
31:25
Speaker 2: out to you that the SEC mandates that disclose how
31:29
Speaker 2: these things actually work when you're investing in a brand new.
31:31
Speaker 3: I don't know house before.
31:32
Speaker 4: I mean again, using leverage means I put up a
31:35
Speaker 4: dollar to buy two dollars worth of something. Sure, so
31:37
Speaker 4: if that doubles, my two goes to four. But I
31:41
Speaker 4: only put in one hundred, so my return would be
31:44
Speaker 4: not one hundred percent but two or three hundred. I'm
31:48
Speaker 4: I'm having trouble doing that. Yeah, minus the interest, Yeah,
31:50
Speaker 4: minus whatever the fee is. Yeah, sorry, that's embarrassing. So
31:55
Speaker 4: I'm not sure how if the underlying asset goes up,
31:59
Speaker 4: given the fact that you didn't, you didn't commit the
32:02
Speaker 4: full amount of the investment, how you could, ever, how
32:05
Speaker 4: it's conceivable even remotely that you could lose money when
32:07
Speaker 4: the underlying moves in your favor.
32:09
Speaker 2: However, that's precisely what happened in this case, and I
32:12
Speaker 2: don't again, depends on how they are conducting that leverage
32:16
Speaker 2: and on what time frame I suppose, but in any case.
32:20
Speaker 3: There are a ton.
32:22
Speaker 2: Of new financial products that are being put out there
32:25
Speaker 2: every day. We talked about earlier this year had the
32:27
Speaker 2: number of outstanding ETFs surpassed mutual funds for the first time,
32:31
Speaker 2: or maybe it surpassed individual securities this year, I don't recall.
32:35
Speaker 3: It was one of the.
32:35
Speaker 4: Yeah, more ETFs than stocks and probably traded companies.
32:39
Speaker 2: The point that we made at the time was just
32:41
Speaker 2: be careful because a lot of these do not have
32:44
Speaker 2: a track record. A lot of these are, you know,
32:47
Speaker 2: putting out there an objective that may or may not
32:50
Speaker 2: be accomplishable, and they're you know, they're required to disclose
32:53
Speaker 2: it all. I think of a lot of these head
32:54
Speaker 2: strategies where there's no downside potential or capped downside or
32:59
Speaker 2: limited downside potential, and it screams it at You're right
33:02
Speaker 2: in the disclosure document that these results can't be guaranteed,
33:05
Speaker 2: and this is an objective, not a not a financial guarantee.
33:09
Speaker 2: It's still a security. It can go up and down.
33:11
Speaker 2: And yet I think a lot of those warnings go
33:13
Speaker 2: largely ignored.
33:14
Speaker 4: I just don't understand. And the example I gave, the
33:16
Speaker 4: return was three hundred percent instead of one hundred percent,
33:19
Speaker 4: and that's that's how you Yeah, I don't understand how
33:23
Speaker 4: the how this is what you describe is even possible
33:26
Speaker 4: absent malpractice and possibly well, I don't want to use
33:31
Speaker 4: the F word being fraud, but you have to suspect
33:35
Speaker 4: that if something goes that badly, something wasn't happening under
33:37
Speaker 4: the hood, that uh, something happened under the hood that
33:41
Speaker 4: was very different than what was being represented. But I
33:43
Speaker 4: don't know the particulars. I probably shouldn't say that.
33:45
Speaker 3: What do you have for a stackerlete market?
33:47
Speaker 4: This story that Tucker keeps talking about about the federal
33:50
Speaker 4: government taking more equity stakes is really grating. We criticized
33:54
Speaker 4: it when the buy or at least I did. I
33:56
Speaker 4: think you did too.
33:56
Speaker 3: Yeah, when the.
33:57
Speaker 4: Biden administration larded chips companies that were having no problem
34:00
Speaker 4: tapping public markets with public funds. Trump administration is taking
34:04
Speaker 4: this to a new level. It's taken shares in Intel
34:07
Speaker 4: a goal a so called golden share, and nip on
34:09
Speaker 4: Steel whatever the hell that means him putting board members
34:12
Speaker 4: in as he pleases and vetoing major decisions multiple rare
34:16
Speaker 4: earths companies. The federal government now is an equity stake,
34:19
Speaker 4: and it's going to be a dozen or will be
34:21
Speaker 4: after these equity stakes are consummated, like ten a dozen companies.
34:26
Speaker 4: Like a lot of people who would normally vote Republican
34:30
Speaker 4: to cry socialism. This is the definition of it. They're
34:33
Speaker 4: gonna meddle in how these companies are managed. There is
34:36
Speaker 4: no capital shortage. Stocks are at record highs. These companies
34:39
Speaker 4: are all in interesting industries. Venture capitalists are overflowing with
34:43
Speaker 4: dry powder. There's no evidence that this industry is having
34:45
Speaker 4: trouble getting capital, and it's not clear that it's nationally vital.
34:49
Speaker 4: This administration just likes owning shares and companies. Those companies
34:52
Speaker 4: are going to be favored. It's going to cause other
34:54
Speaker 4: companies to rather than innovate this angle for getting in
34:59
Speaker 4: the good races of the Trump administration. Who do we
35:01
Speaker 4: contribute to his ballroom? Maybe they'll give us some capital.
35:04
Speaker 4: This just sets such a bad precedent. A lot of
35:07
Speaker 4: people are worried about the next mayor of New York
35:08
Speaker 4: City owning a few grocery stores. The scale of this
35:12
Speaker 4: and the implications for the economy as a whole are
35:14
Speaker 4: for far greater, far more dire.
35:16
Speaker 2: I just Whenever stuff like this comes up, I always
35:19
Speaker 2: just like to put it in perspective of, you know,
35:22
Speaker 2: does the average American think this is a good or
35:24
Speaker 2: bad idea?
35:26
Speaker 4: They don't know about it, Mike.
35:27
Speaker 3: I don't think the average American knows we're trying to.
35:30
Speaker 4: But you know, they are major news channels. They aren't
35:31
Speaker 4: talking about this at all.
35:32
Speaker 2: But I think a lot of them would say that's okay.
35:35
Speaker 2: I trust the president. I elected him because he's a
35:38
Speaker 2: good businessman, and this is precisely what I want him
35:40
Speaker 2: to do. And I'm going to take your perspective on
35:42
Speaker 2: that and say, okay, you buy that. The problem is
35:46
Speaker 2: the president, because when the president leaves office, the United
35:52
Speaker 2: States Government is still likely to own shares in these companies,
35:55
Speaker 2: and it is going to be holding upon the following
35:58
Speaker 2: president to be these stewards, and then, you know, presumably
36:03
Speaker 2: continue to expect.
36:04
Speaker 4: How do we get out of these if the US
36:06
Speaker 4: government at some point if President aoc God forbid, but
36:09
Speaker 4: if it happened in five years, forgive me, but God forbid,
36:12
Speaker 4: then again, would she buy fewer companies than this guy's doing.
36:14
Speaker 4: How do we get out of these positions if the
36:16
Speaker 4: next president announcers, they're going to unwind them. It would
36:18
Speaker 4: tank these companies. And I'll say again, where is the
36:21
Speaker 4: evidence that they're having trouble raising capital? And why would
36:24
Speaker 4: you want to pick these companies? Is the winners in
36:26
Speaker 4: the quantum and in this example it's quantum computing, but
36:30
Speaker 4: there are lots of other examples with this crowd.
36:32
Speaker 2: I think we should just always be highly suspect of
36:36
Speaker 2: the idea that any government US abroad is going to
36:41
Speaker 2: be good at picking winners and losers. I think there's
36:43
Speaker 2: very little compelling evidence to support that the Soviet Union
36:48
Speaker 2: attempted it, China has attempted it, the United States is
36:50
Speaker 2: now attempting it. I think that the lesson here is
36:55
Speaker 2: that the government, when it comes to markets in the economy,
36:58
Speaker 2: the job that they should play is to set conditions
37:02
Speaker 2: for good investment and let the markets figure it out.
37:06
Speaker 2: There are exceptions, right like, yeah, when the Great Depression happens,
37:09
Speaker 2: sitting back and raising taxes is probably not a good idea.
37:13
Speaker 2: But in normal market environments, where the system is working,
37:17
Speaker 2: cash flow is moving, and there is liquidity, the government's job,
37:21
Speaker 2: in my view at least, should not be to step
37:23
Speaker 2: in and say we're taking stakes in companies. You can
37:28
Speaker 2: set the conditions for that to happen, but it doesn't
37:30
Speaker 2: need to be done by the United States Treasury.
37:32
Speaker 4: It's really annoying that we're still having these discovery Look,
37:36
Speaker 4: there are arguments over what's vital. Should the federal government
37:39
Speaker 4: help industries or but there.
37:40
Speaker 3: Are ways to do it without taking equities.
37:42
Speaker 4: You don't take funding away from colleges that create Forgive me,
37:44
Speaker 4: but this is another thing they're doing that's totally backwards
37:47
Speaker 4: and counterproductive. Good research happens in colleges. That research is
37:51
Speaker 4: then disseminated out into the world. It becomes a public good.
37:54
Speaker 4: We can all use it. They're defunding college research and
37:57
Speaker 4: at the same time effectively show bring private sector companies
38:01
Speaker 4: with favors.
38:02
Speaker 2: Markets are in positive territory, Nasdaq leading the way, up
38:06
Speaker 2: three quarters of a percent, SMP up four tenths of percent,
38:08
Speaker 2: the Dow up one tenth of a percent.
38:10
Speaker 3: That is all the time we have for.
38:11
Speaker 2: Today, but we will be right back at it tomorrow
38:14
Speaker 2: with a CPI Friday.
38:15
Speaker 3: Have a great day, everybody,